ECON 20B Chapter Notes - Chapter 33: Aggregate Demand, Aggregate Supply, Classical Dichotomy
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ECON 20B Full Course Notes
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Recession: period of declining real incomes and rising unemployment. Depression: severe recession: fact 1: economic fluctuations are irregular and unpredictable. Business cycle: fluctuations in econ, not regular impossible to predict: fact 2: most macroeconomic quantities fluctuate together real gdp measure all goods and supply within period of time (short run) changes. Conditions deteriorate, much is cause of reductions in spending on new capital: fact 3: as output falls, unemployment rises. Recession causes rise in unemployment when real gdp declines. Explaining short run econ fluctuations: assumptions of classical economics classical dichotomy: separation of variables into real variables classical macroeconomic theory: changes in money supply affect nominal variables but not real variables. Money doesn"t matter in classical world, real variable more important than nominal because it"s the forces of econ: reality of short run fluctuations. Most economics believe that classical theory describes the world in the long run but not short run.
